New Zealand and Australia’s economy well on track but the positive impact has yet to be transferred to local currencies; USD fluctuates given disappointing ADP data

•NZD and AUD both lower despite strong commodities data and Australia GDP
•USD slightly up but still fluctuates with uncertainties given employment data

NZD finds itself rather calm this week, after some considerable gains from last week against USD. The catalyst for the reversal this week has been the surging yields that boosted USD. The 10-year yields climbed to a one-year high last week but has since retreated, leaving USD running out of steam as well. As a result, NZD has been drifting throughout the week. The ANZ Commodity Prices index rose 3.3% in February, at its highest since April 2014 and showing strong demand for New Zealand’s commodities. However, this has not created as much momentum for NZD as it does on the national economic outlook. At least, investors are now holding a stronger optimism regarding New Zealand’s economic strength.

In Australia, the economy grew by 3.1% in 2020 Q4, beating the forecast at 2.5%. Much of the gain is attributable to increases in exports, notably iron ore. Overall, the economy bodes well in 2021 but AUD has nevertheless lost ground Wednesday. Part of the reason might be investor’s focus on the YoY change on GDP which showed a 1.1% decline compared with 2019 Q4, despite it still being stronger than the consensus of 1.8% decline.

USD inched up on Thursday morning in Asia, after hitting a seven-month high against JPY during the previous session. Later in the day, Fed chair Powell will give a virtual speech at Wall street Journal Jobs Summit, and investors will closely watch for signals on the economic and employment direction. Moreover, his speech will also likely give out some heads up to Fed’s next meeting on March 17th. On Wednesday, the ADP nonfarm employment change was released and landed at +117k jobs, missing the forecast at 203k and being further weaker compared with the prior release at 174k. ADP is usually a preclude to the actual nonfarm payroll data, from which investors are looking for a forecast at 185k. A significantly lower release could greatly weigh on the USD unless there are other positive news to boost it.